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‫بسم هللا الرمحن الرحيم‬

The Islamic University
Faculty Of Commerce
Dep of Economics and
Political Science
Microeconomics
Date: 16/02/2009
Time: Two Hours
Name : ------------------------------------------------ student No : ----------------------
Answer The Following Questions:
Q 1: Please define these sentences whether they are true (/) or false (X).
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A mixed economy may involve both perfect and imperfect
competition.
An increase in demand means a movement to a higher quantity along
demand curve.
Marginal utility tends to increase as total utility increases.
Market system gives more goods to those with money votes.
Without government, for whom problem could not be solved.
The single word that best describes the fundamental problem of
economic is unemployment.
Total utility tends to rise as the level of consumption rises.
Good A is said to be complementary to good B, if more of B bought
when the price of A decrease.
Economics includes the study of how to improve society.
As businesses grow, their need for capital typically tends to decrease.
Waters tends to have a low marginal utility because its substitutes are
widely available.
The average product of labor increase when additional worker are
added.
Price increases cause a decrease in a household choice set.
The rate of return is a rate of return on capital that is just sufficient to
keep owners and investors satisfied.
The long run is a period of time for which there are no fixed factors
of production.
The optimal method of production is the method that minimizes cost.
The incomes available to the household determine quantity supplied .
Most economic activities would be described as perfect competition.
Oligopoly is a situation with only a few competing firms.
Upward-slopping supply curve are the result of increasing labor cost.
When demand does not respond at all to a change in price, demand is
perfectly elastic.
Homogeneous products are undifferentiated products; products that
are
identical.
Q 2: Choose Best Answers:
1) A price……. is a maximum price that sellers may charge for a good, usually
set by Government
a) rationing
b) ceiling
c) market
d) system
2) The most common example of a price floor is the:
a) maximum salary
b) minimum wage c) medicine price d) corn price
3) When quantity demanded drops to zero at the slightest increase in price,
Demand is then:
a) inelastic
b) perfectly inelastic
c) perfectly elastic d) elastic
4) When demand is inelastic, increase in price leads to ………… in revenues:
a) no change
b) decrease
c) increase
d) it depends
5) It is one of the three basic decisions that should be taken by households in
output market:
a) how much to eat b) whether to work c) wage rate
d) how much labor to
supply
6) The additional satisfaction gained by the consumption/use of one more unit of
something
a) utility
b) reward
c) happiness
d) marginal utility
7) Total utility increases at………… rate, while marginal utility ………..:
a) decreasing, decreases b) increasing, increases c) decreasing, increases d)
increasing, decreases
8) ……… has the greatest value in use, and have little/no value in exchange
a) water
b) diamond
c) rare photos
d) gold
9) Income effect: when the price of a product ……., a consumer has …..
purchasing power with the same amount of income
a) falls, more
b) rises, less c) falls, less d) rises, more e) a+b f) c+d
10) Price takers are:
a) demanders
b) governments c) individual firms
d) households
11) Economic profit equals:
a) total revenue – total cost
b) total revenue – total economic cost c) net profit
d) total economic revenue – total economic cost
12) Normal rate of return is:
a) opportunity cost b) normal return c) economic cost d) all of them
13) The objective of any kind of firms is:
a) profit maximization b) cost minimization c) maximization of owners’ wealth
d) all of them
14) The optimal method of production is the method that:
a) maximize profit b) minimize cost c) maximize owners’ wealth d) all of them
15) The number of ice-cream shots you take is subject to:
a) low of diminishing of marginal return
b) low of diminishing of marginal utility
c) low of diminishing of marginal cost d) low of diminishing of marginal product
16) The number of labors added to Palmera grill corner is subject to:
a) low of diminishing of marginal return
b) low of diminishing of marginal utility
c) low of diminishing of marginal cost d) low of diminishing of marginal product
17) You can derive the Average Total cost by:
a) TC/Q
b) AFC + ATC
c) (TVC/Q) + (TFC/Q) d) all of them
18) Total fixed costs:
a) overhead costs b) sunk costs c) do change with output d) all of them e) a+b
19) Marginal costs reflects changes in:
a) fixed costs
b) average costs c) total costs d) all of them
20) The profit maximizing level output for all firms in perfect competition is the
output level where:
a) MR = MC
b) MR = P c) MC = P d) all of them
e) non of them
21) If revenues exceed variable costs only, the firm will:
a) shut down and get out from the market
b) hold production at all
c) shut down
d) keep operating
22) If variable costs exceed revenues, the firm will:
a) shut down and get out from the market
b) shut down
c) stay in market and adjust production level
d) keep operating
Q 3: Answer the following questions.
1. An art museum raises its admission price, and ends up with a decrease in its
total revenue. How could you explain this situation to the museum director?
2. The price of bread rises from $1.25 to $1.50 per loaf, quantity demanded falls
from 5,800 per week to When 5,500. Calculate total revenue both before and
after the price change. What can we tell about the price elasticity of demand
for bread?
3- Consumer equilibrium exist when…………………
4- Differentiate between MRT and MRS?
Q 4:
1- You have the following hypothetical demand elasticties for four products:
Product
(1)
Ogmen (medicine)
Jawwal service, Gaza
Chicken
Apples
% change in
Price (2)
- 20%
+20%
+20%
- 20%
% change in
QD (3)
0%
- 2%
- 20%
+60%
Elasticity Result
(4)
Type of
Elasticity (5)
a) State the formula of the 'price elasticity of demand.
b) Use the formula above to fill column Nos. 4 and 5
c) Explain why the elasticity of demand in the short run may be very different
from the elasticity of demand in the long run.
2- After your graduation from IUG, Gaza, you got a job where your monthly earnings
is Palestinian Pound PP300. Assume that you spend the PP300 on the following
items:
- 5 meals at Ma'touq restaurant costing PP200
- 10 visits to Rouzi Club costing PP 100
Required:
a) What is the definition of Budget Constraint
b) Draw the Budget Constraint for your monthly spending.
c) Define 3 points related to the budget constraint line; i.e. 1 st point outside the
line, 2nd point on the line and 3rd point inside the line. What does each point
tell you?
d) How we can make a shift in the budget constraint? Draw the figure
Q 5:
1- Use a graph to show the deadweight areas, and explain why it exists.
2- Draw the Isoquants and Isocost curves
3- Draw the MC, AVC, and TC curves and present the shut down and
breakeven points.
4-Draw the difference between change in supply and Quantity supplied.